Yes, that's the thing you need for the quest. Upgrade your smithy and talk to the mage-smith to get restore the sword.
Oh... Fuck me, no easy debug then. Alright, I'll try to find some time to double-check it on my side with different entries.
just to be sure, you have both the blade and the guard from the temple, upgraded the smithy and aside from the introductory dialogue from the mage-smith, you can't advance the quest, right? Also, what version of the game do you use?